Chapter 13

Calendar Spreads with VIX Options

Chapter 12 discusses trading two different VIX future contract expirations as a spread. These spreads take advantage of the effect of price changes over the passage of time on the relative values of the two contracts. The change in the relative values of two futures contracts also shows up in the pricing of VIX index options with different expiration dates. Remember, the proper underlying instrument used to value a VIX option contract is the VIX futures contract that shares expiration with the option. Being that the ability exists to benefit from the pricing differences of futures contracts, trading option contracts in this manner is also a trading strategy used by VIX option traders.

This chapter will begin with a quick review of VIX option pricing, specifically how the price of VIX futures contracts should be considered the correct underlying when valuing a VIX option contract. Then two option trading strategies will be discussed. These strategies would be implemented to benefit from a forecasted change in the corresponding futures prices. Versions of this strategy may be implemented with both put options and call options, so both will be demonstrated. After the introduction of this strategy, a time-based option spread strategy with the same fundamental thesis will be discussed.


As discussed in the introduction to VIX index option contracts in Chapter 4, there is a pricing relationship between VIX option contracts ...

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